The Home Equity Theft Reporter

Welcome to The Home Equity Theft Reporter, a blog dedicated to informing the consumer public and the legal profession about Home Equity Theft issues. This blog will consist of information describing the various forms of Home Equity Theft and links to news reports & other informational sources from throughout the country about the victims of Home Equity Theft and what government authorities and others are doing about it.

More Broward cities have found a new way to drive people crazy, but this time it's the scofflaws they're targeting.

Following Hollywood's example, cities are going after businesses who scatter their advertising in the public right-of-way by starting a robocalling system — which is essentially serial calls.

Now Tamarac has started the calls and says it sees a marked improvement. Pompano Beach has agreed to start soon, too.

"We're hoping this will solve the problem by annoying them," said Pompano Beach Vice Mayor George Brummer. "That's the purpose, to upset them enough and to interrupt their business enough by making the phone calls."

In Hollywood, where signs abound to buy gold and junk cars, fix your AC or rescue you from foreclosure, pre-recorded messages tell those businesses their signs were illegally placed in a public right of way and must be removed. And if they want the calls to stop, they must go to City Hall — where they'll receive a citation — and fill out paperwork confirming that the signs have been removed.

Pompano Beach decided last week to jump on the robocall bandwagon. As soon as the city purchases the robocalling software, the snipe sign businesses can expect a few calls.

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In Hollywood, the calls have worked, said city spokeswoman Raelin Storey. The city's removed 117 signs in March, when it first started the robocalling program; 24 were removed in April and 13 in May.

"Our code enforcement unit reports an estimated decrease in the number of signs of 90 percent," Storey said. "We believe that as the companies that place these signs began getting the calls, they made the decision that putting up illegal snipe signs in Hollywood was not worth the trouble. The calls have had a deterrent effect."

Cities and departments from all over the country have called about the program, Storey said. Among them are Las Vegas, Nev.; the Delaware Department of Transportation; Salisbury, Maryland; Chattanooga, Tenn.; and Florida cities Oakland Park, Plant City, Lauderhill, Miramar, and Leesburg.

Collier County Sheriff's Office's Organized Crime Bureau is investigating a rental scam ring, focusing on foreclosures. 21-year-old Yoandry Leiva was first arrested in April for allegedly breaking into a foreclosure, and renting it out to an unsuspecting tenant. Now, detectives say they've connected him to over a dozen more fraudulent rentals.

Collier County detectives say Leiva acted as a middle-man to link tenants to foreclosed properties. He's accused of breaking into abandoned homes and listing himself as the landlord.

"They were posting ads advertising homes for rent. When unsuspecting people called, thinking it was a legitimate ad, he would meet with these people," CCSO Detective David Spahl said Wednesday.

Detectives say Emanoel Thermitus was one of Leiva's first victims. WINK News spoke to her in April, after deputies evicted the single-mom one week after she moved in. She was out thousands of dollars and left homeless. "It's a lot of money for me because I'm by myself and I've been by myself forever," Thermitus said back in April.

Now, detectives say they've located more fraudulently-rented out foreclosures, linked back to Leiva. The majority of the properties are in East Naples. Tammy Daffron had no idea her home was being rented out. "I think he's trying to make money, just like we all are. Unfortunately, he's not doing it the right way, like 99% of us do," Daffron said Wednesday.

Detectives suspect Leiva likely worked in a ring. They're now alerting anyone with a foreclosure to keep a protective eye on the property. "I don't think this is the only group that's doing it. We don't have direct evidence at this point but it would be reasonable to believe that this isn't the only person doing it," Spahl said.

CCSO is still investigating the crime and looking for more leads on fraudulently rented out foreclosures. If you have any information, you're asked to call Collier County Sheriff's Office at 239-774-4434. You can also leave an anonymous tip with Southwest Florida CrimeStoppers at 1-800-780-TIPS.

Pair Accused Of Running Bogus 'Cash For Keys' Racket, 'Phantom' Home Fix-Up Scam That Screwed Employer Out Of Nearly $1.8M

In Los Angeles, California, Los Cerritos News reports:

Two Norwalk real estate agents have been arrested on 102-felony counts of grand theft and criminal fraud on Thursday afternoon.

John Wesley Martynec, 38, of Long Beach, is a licensed real estate broker. Elek Andrade, 27, of Downey, is a licensed real estate salesperson. In a case investigated by the Commercial Crimes Bureau of the Los Angeles County Sheriff’s Department.

Law enforcement officials, including the Los Angeles County District Attorney’s Office charged Martynec and Andrade with102 felony counts of Grand Theft and Identity Theft each, in connection with a complex and sophisticated fraud scheme resulting in the theft of nearly $1.8 million from their employer.

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It is alleged that between November, 2003, and July, 2008, Martynec and Andrade were employed by JTR Real Estate and Results Mortgage. While employed there, it is alleged that Martynec and Andrade committed theft in the following ways:

JTR Real Estate purchased residential properties which were often occupied by renters. In order to avoid a lengthy eviction process, the company would offer cash pay outs to renters as incentive to move out voluntarily.

It is alleged that Martynec and Andrade submitted false “move out” invoices to the company, claiming that cash pay outs were offered to renters, when in fact they were not. The identities of actual persons were stolen and placed on the fraudulent “move out” invoices. The suspects then diverted the money to themselves.

It is alleged that Martynec and Andrade submitted false invoices to their employer for contractor costs associated with the rehabilitation of properties, when in fact the work was never done, and then diverted the funds to themselves.

It is alleged that Martynec embezzled funds by creating false entries in financial ledgers and diverting funds to a company he controlled named JWM Enterprises.

Ex-Girlfriends, Neighbors Pitch In With Assist In Crackdown On Landlords, Other Property Owners Scoring Improper Tax Exemptions For Homestead Claims

In Sunrise, Florida, the South Florida Sun Sentinel reports:

City Hall is looking to crack down on tax cheats, with a little help from the Broward County Property Appraiser's Office.

"It's an ongoing challenge," Property Appraiser Lori Parrish said. "Just when we think we have them all cleaned up, we get a batch of new ones."

In 2009, fraud investigators nabbed 237 homeowners in Sunrise who were wrongly claiming homestead exemptions. The tax break, available only to Floridians on their primary residence, caps the annual increase in appraised value used to set tax bills.

The crackdown put nearly $22 million in property value back on the tax rolls. The county was owed $726,000 in back taxes, with $181,000 going to Sunrise.

The Commission For Lawyer Discipline has filed suit against Houston attorney Calvin C. Jackson over allegations he committed forgery.

According to a lawsuit filed June 18, Jackson "deceitfully" filed pleadings in a June 2010 lawsuit in Galveston County Court at Law No. 3 under the forged signatures of the plaintiff's counsel. Jackson was representing one of the defendants in the litigation, which was consolidated into another case.

Recent court documents claim Jackson falsely signed Houston attorney Cedrick Muhammad's name on a motion to retain case on June, 2, 2011, and fraudulently put attorney Kendric Ceaser's, also of Houston, name on a motion to reinstate after dismissal without prejudice a month later.

The defendant did not have either counsel's permission to sign on their behalf, the suit contends.

Fla. Supremes Bench 'Touchy' Judge For Illegal Use Of Hands, Representing Mom In F'closure Case While Working As Jurist, Getting Illegal Campaign Loan

In Tallahassee, Florida, The Associated Press reports:

The state Supreme Court suspended the law license of a former central Florida judge who had been removed from office for unethical and illegal conduct. The justices [...] ordered that N. James Turner be immediately suspended for 90 days.

They removed him as a circuit judge in Osceola County in November for ethics violations that included hugging and kissing a female court worker without her permission.

The high court also found Turner violated judicial ethics by representing his mother in a foreclosure case while a sitting judge.

In addition, the justices ruled he violated the state's campaign finance law by accepting and failing to report a $30,000 campaign loan from her. The loan violated a limit of $500 per contribution.

Friday, July 06, 2012

The Federal Trade Commission won a $2.6 million federal court judgment against three defendants behind a scheme that charged consumers large upfront fees and failed to deliver the mortgage modifications they promised.

The court also banned the three defendants for 10 years from telemarketing financial products or services; from selling mortgage modification, foreclosure rescue, and debt-relief products or services; and from collecting or attempting to collect from consumers who had agreed to purchase a mortgage-assistance product or service. The court ordered the defendants to destroy any consumer information they have collected within 30 days after the order takes effect.

The U.S. District Court for the Middle District of Florida, Tampa Division, entered permanent injunctions against three defendants. It also approved settlements with five more defendants in the case, and entered a default judgment against another defendant.

The FTC filed a complaint against the nine defendants behind the Crowder Law Group in a 2009 law enforcement sweep as part of its continuing effort to keep homeowners from being targeted by mortgage-related scams.

The FTC alleged that the defendants behind Crowder Law Group promised relief from burdensome mortgages by falsely claiming they could modify consumers’ mortgages and substantially reduce their monthly payments; exaggerating the role an attorney would play in obtaining a loan modification; and pretending to be affiliated with a government agency.

All nine defendants were charged with violating the Federal Trade Commission Act and the Telemarketing Sales Rule. The operation involved a marketing company that contracted with a direct-mailing company to send oversized postcards to homeowners nationwide whose mortgage payments were at least two months in arrears.

Each postcard offered financial relief to the homeowner and displayed a toll-free phone number and the signature of an attorney who was local to the homeowner and was paid $100 to accept the homeowner into the program. When homeowners called the toll-free number, a customer service representative collected financial documents and the $2,000 fee from the consumer.

The court found that the defendants, through the post cards and telephone procedures, assured homeowners that they had qualified for loan modifications. In fact, homeowners still had to go through the modification process with lenders, and it which was usually unsuccessful.

Squatter Family Pinched For Hijacking Possession Of Vacant Home In Foreclosure & Turning It Into Mini Indoor Pot Farm

In Port Orange, Florida, The Daytona Beach News Journal reports:

A married couple found squatting in a Port Orange home were arrested and charged with growing marijuana in the house, police said [].

Sean Pichelman, 41, and Jessica Pichelman, 38, were each charged with cultivation of marijuana, possession of marijuana and the possession or use of narcotic paraphernalia, Port Orange police arrest reports show.

Jessica Pichelman got out of jail Saturday after posting $4,500 bail, court records show. Port Orange police said Sean Pichelman was taken to the Volusia County Branch Jail on $2,500 bail, but a booking officer had no record of him Monday.

Police said a Realtor was checking on the home under foreclosure at 5955 Broken bow Lane over the weekend when he discovered Sean Pichelman, his wife and a 5-year-old daughter living there. Sean Pichelman said he had rented the house from one of the owners but when police contacted the property owners, they said they had not rented the home to anyone.

Sean Pichelman came to the Port Orange Police department to be interviewed and after not being able to produce a lease agreement and proper documents, was arrested for trespassing. Jessica Pichelman said the family had only been living in the house for a week, police said.

Police checked Sean Pichelman's pickup and found 26 small marijuana plants in a planter on the passenger side floor. About the same time, the Realtor called police to report he had found marijuana in the home.

Inside the home, police found harvested marijuana in a pantry. In an attached mother-in-law suite, police found a grow operation in a closet complete with fans, power inverters and commercial lighting equipment.

Seventeen additional small plants and three large plants were found. In all, slightly more than 13 ounces of marijuana was seized, police said.

Homeless Man Scores Temporary Stay In Daytona Beach Jail After Being Pinched For Allegedly Using Vacant Foreclosed Home In Craigslist Rent Scam Ripoff

In Ormond Beach, Florida, the Orlando Sentinel reports:

A homeless man used Craigslist to illegally collect more than $1,000 renting out a foreclosed home he didn't own in Ormond Beach, according to the Volusia County Sheriff's Office.

"The man's new income stream came to an abrupt end Sunday," agency spokesman Brandon Haught wrote. "Eric Sisson …now has a place to stay in the Volusia County Branch Jail in Daytona Beach where he faces seven criminal charges."

The case began last month when a 19-year-old Daytona Beach woman answered a Craigslist ad to rent the house on Arroyo Parkway. She toured the home and later met Sisson on June 25 and gave him a $400 cash deposit, followed the next day with $550 more in cash, records show.

Later, she became suspicious, requested the return of her money and was given a check by Sisson that bounced at the bank, records show. By then, a 29-year-old Ormond Beach woman already had moved into the house after giving Sisson a $425 deposit, records show.

When the women contacted authorities, deputies contacted the house's owner in Port Orange who said she didn't know Sisson and hadn't given anyone permission to rent the house that was in foreclosure, records show.

On Sunday, Sisson, 27, returned to the house to collect remaining rent and was arrested by deputies. At first, he claimed to own the three-bedroom home but then admitted "he had scammed the victims because ... he needed the money he took to get a place to live."

Sisson remains jailed on charges of obtaining property by fraud, uttering a worthless check, three counts of unarmed burglary and two counts of grand theft. Deputies also learned he had outstanding warrants in Brevard County for worthless checks and driving with a suspended license, as well as in Indiana for forgery and grand theft.

Thursday, July 05, 2012

Proof Of Common Law Fraud Not Needed To Maintain Suit Under "Catch-All" Section Of PA State Consumer Protection Law In Loan Servicer Jerk-Around Case

In a purported class action lawsuit filed in a U.S. District Court in Pittsburgh, Pennsylvania filed by two homeowners against a pair of mortgage servicers and a law firm/debt collector alleging conduct that is apparently now the standard for the servicing industry (jerk-arounds, conflicting communications, allegedly erroneous charges, etc.), a district judge recently granted the defendants' motion to dismiss several counts made against them, but allowed other counts to survive, thereby allowing the lawsuit to proceed.

Among the counts allowed to survive (specifically, count VII in the lawsuit) was one involving claims for violations under Pennsylvania's Unfair Trade Practices and Consumer Protection Law ("UTPCPL").

The following excerpt is District Judge Mark R. Hornak's analysis of the applicable law and his assessment of the allegations in determining the the lawsuit should continue with regard to this count:

Homeowners rely upon two specific definitional provisions of the UTPCPL for their claims that PHS. Citi, and Seterus engaged in "unfair or deceptive acts or practices." § 201-2(4).The first, Section 201-2(4)(v), is inapplicable to the facts as alleged by Homeowners. This section labels as "unfair or deceptive" the act of "[representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits or quantities that they do not have or that a person has a sponsorship, approval, status, affiliation or connection that he does not have." In other words, section 201-2(4)(v) applies to cases where a defendant misrepresents the characteristics of a product, such as suits involving false advertising. See, e.g., Haggart v. Endogastric Solutions, Inc., No. 10-0346, 2011 WL 466684, at *6 (W.D. Pa. Feb. 4, 2011) (noting that Pennsylvania law requires a plaintiff to allege, among other things, that the challenged advertisement is false for liability under section 201-2(4)(v) to attach); Glover, 2010 WL 5829248, at *9 (W.D. Pa Oct. 21, 2010) (dismissing claim against a mortgage servicer, because the servicer did not make any deceptive representations regarding the "characteristics, uses, or benefits" of a loan modification agreement); Meyer v. Cmty. Coll. of Beaver Cnty., 2 A.3d 499, 549 (Pa. 2010) (noting that sections 201-2(4)(v) through (vii) relate to claims of nonconforming goods or services). Homeowners' allegations that they paid improper reinstatement fees when in default does not equate to an allegation that PHS, Citi, or Seterus misrepresented the actual characteristics or benefits of the note and mortgage themselves. Glover, 2010 WL 5829248, at *9. Accordingly, to the extent that Homeowners bring claims against Defendants under section 201-2(4)(v) of the UTPCPL, that claim is dismissed with prejudice.

The second UTPCPL provision upon which Homeowners rely is the "catchall provision" of section 201-2(4)(xxi).

This section is expansive in that it encompasses a wide range of circumstances because a defendant need only engage in "any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding" for liability to attach. Id.

PHS argues that a heightened level of pleading akin to an allegation of common law fraud is required to bring an action pursuant to the "catch-all" provision, and Homeowners fail to meet this heightened threshold. See, e.g., Ross v. Foremost Ins. Co., 998 A.2d 648, 654 (Pa. Super. Ct. 2010) ("In order to establish a violation of the [UTPCPL's] catchall provision, a plaintiff must prove all of the elements of common-law fraud." (internal quotations omitted)). Similarly, Citi and Seterus argue, among other things, that Homeowners do not show that they relied upon any statements from either company. Justifiable reliance on a misrepresentation is an element of common law fraud, along with scienter, intention by the defendant to induce action, and damages to the plaintiff. Id.

Recent developments in Pennsylvania law convince this Court that meeting a heightened "fraud pleading" standard is not required to maintain a cause of action under the "catch-all" section of the UTPCPL.

In Bennett v. A. T. Masterpiece Homes at Broadsprings, LLC, 40 A.3d 145 (Pa. Super. Ct. 2012), the Pennsylvania Superior Court analyzed two conflicting lines of cases on this issue of the appropriate pleading standard. One line of cases relied upon the pre-1996 language of section 201-2(4)(xxi) to conclude that litigants must allege enough facts to satisfy the elevated pleading standard necessary for common law fraud. Id. at 152.

However, the Bennett court noted that these cases had not considered the change to the "catch-all" provision's language in 1996, when the Pennsylvania legislature amended section 201-2(4)(xxi) to include the term "deceptive" in addition to the term "fraudulent." Id.

In order to give effect to all words in the statute as required by the Pennsylvania rules of statutory construction, the Bennett court adopted the reasoning of an opposing line of cases, which held that the inclusion of the word "deceptive" in section 201-2(4)(xxi) "lessened the degree of proof needed to maintain an action under the "catch-all" provision. Id. at 153-55.

The Superior Court concluded its reasoning by stating "we hold deceptive conduct which creates a likelihood of confusion or misunderstanding can constitute a cognizable claim under Section 201-2(4)(xxi)." Id. at 154-55.

Accordingly, conduct that is capable of being interpreted as "misleading" falls within the reach of the UTPCPL. See id. at 156 (holding that the lower court correctly instructed the jury when it stated that "misleading conduct" was actionable under the UTPCPL's catch-all provision). Having reviewed the Bennett court's analysis and the cases underpinning its decision, this Court is satisfied that section 201-2(4)(xxi) does not require a litigant to plead the elements of common law fraud.

Regarding the alleged deceptive conduct here, Homeowners have asserted sufficient facts at this stage in the proceedings to show that confusion or misunderstanding could reasonably arise from PHS's, Citi's, and Seterus's actions and that Homeowners were indeed misled by those actions.

Homeowners allege that Citi referred Homeowners' mortgage to foreclosure while, at the same time, the company was representing to Homeowners that there was the possibility of an alternate payment arrangement. The purpose of this arrangement was to allow Homeowners to avoid the very foreclosure proceedings Citi initiated. PHS and Seterus then sent Homeowners multiple conflicting reinstatement letters, which Homeowners allege contain misrepresentations as to the amount of their debt. Homeowners further claim that they were damaged when they remitted a payment that included intentionally mislabeled fees. These allegations allow Homeowners to maintain a cause of action against all three Defendants under the UTPCPL's "catch-all" section.

Citi and Seterus also advance another argument in support of their Motions to Dismiss regarding the UTPCPL. They claim that Homeowners lack standing to sue them under the UTPCPL, because neither Citi nor Seterus were original signatories to the note and mortgage, meaning that Homeowners cannot allege that they purchased any goods or services from either Citi or Seterus.

However, the UTPCPL's reach is expansive, and, to that end, the Third Circuit in In re Smith, 866 F.2d 576 (3d Cir. 1989) emphasized that a district court should not limit the UTPCPL's application to only those circumstances where the unfair or deceptive conduct induced the consumer to make the initial purchase. Id. at 583.

Such a reading of the statute "would insulate all kinds of practices from the [UTPCPL], such as debt collection, which occur after entering an agreement and which were not a basis for the original agreement." Id. (emphasis added). Similarly, liability can be imposed upon a mortgage assignee under the UTPCPL providing the plaintiff advances specific allegations of wrongdoing against the assignee, not simply against the original lender. See Murphy v. F.D.I.C., 408 Fed. App'x. 609, 611 (3d Cir. 2010) (emphasizing the UTPCPL does not impose liability on a loan assignee absent claims of an assignee's wrongdoing). Homeowners assert such allegations directly against both Citi and Seterus here. Therefore, the fact that Citi and Seterus were not parties to the original mortgage is not dispositive.

For the foregoing reasons, all Defendants' Motions to Dismiss as they apply to Homeowners' claims under the UTPCPL are denied.

Two renters in Sarasota's Park View condo complex have gotten a rude surprise over the past few weeks. They discovered their landlord -- Michael Kell of Canton, Ohio -- does not have firm title to the units he has been renting them since September.

Kell bought the units from the Park View Condo Association, which had foreclosed on the former owners because they had not paid their association dues. Kell apparently made the purchases knowing the bank that provided loans for the former owners would some day foreclose and take possession of the units.

But his tenants say Kell did not say anything to them about a pending foreclosure.

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An attorney representing the Park View Condominium Association said it is not uncommon for condo associations, which are owed condo dues, to take title to units through foreclosure.

Some of those associations then rent them to cover their overhead expenses and a few sell their temporary title to private investors like Kell for a few thousand dollars, and the private landlords rent them out until the the banks that are owed money foreclose on former owners.

"Everyone is taking a chance," said Kevin Edwards, an attorney with Becker & Poliakoff in Sarasota whose firm represents Park View. "But it usually takes a long time for the bank to complete the foreclosures."

The problem [...] is that Kell never notified [the tenants] that their lives could be disrupted. "If he had approached me and explained the situation, I would have nothing to complain about," [tenant Lucia] Reid said. "My goal was to stay here and buy something down the road. But I can't live here with the uncertainty."

Six federal lawsuits regarding tax sales have been consolidated and a judge is scheduled to choose an interim class lead attorney today, July 2.

A class action lawsuit initiated by a Lebanon Township woman facing foreclosure was the first to be filed. Jeanne Boyer, who has been fighting to save her own home from foreclosure, filed the suit in March on behalf of herself and potentially thousands of other homeowners in similar situations. Boyer alleges that she is one of many victims of an illegal scheme that allowed tax lien investors to charge the highest amount of interest allowed by law by eliminating the competitive bidding process.

The suit was filed in Hunterdon County Superior Court on March 13 and removed to federal court on March 28. Since then five other similar suits have been filed in Federal District Court, one in the Camden district, the rest in the Trenton district.

Raymond Contarino, of Newfield; MSC, LLC, of Cherry Hill; T&B Associates, Inc.; Ronald English and Lana and Samuel Ledford filed the other suits. An order to consolidate the cases was entered on June 11.

The six suits have many of the same defendants in common. The defendants include those that have already pleaded guilty and others still under investigation.

The suits ask the court to stop the people who have pleaded guilty from enforcing any tax liens they currently hold, return title to properties already foreclosed upon and turning over proceeds from sales of properties they received because of the bid-rigging scheme. Such proceeds are the “fruits of the illegal conduct” of the people now awaiting sentencing, according to the suit.

Wednesday, July 04, 2012

Duo Plead Guilty To Duping Unsophisticated, Financially Drained Home Sellers Out Of $600K In Sale Proceeds In Scam Purporting To Give F'closure Relief

From the Office of the New Jersey Attorney General:

Attorney General Jeffrey S. Chiesa announced that a Ewing couple who ran a real estate firm pleaded guilty to stealing from home sellers by diverting proceeds from home sales, and also defrauding mortgage companies by falsifying the earnings of loan applicants.

An investigation by the Division of Criminal Justice Financial & Computer Crimes Bureau revealed that the couple, using their real estate firm, S&B Property Management and Maintenance LLC of Trenton, stole over $600,000 from sellers in connection with 11 home sales, and defrauded mortgage companies of a total of $641,800 in proceeds of three home loans.

Joann Smith, 47, and her boyfriend, Wayne Betha, 42, each pleaded guilty on Friday afternoon (June 29) to second-degree theft by deception and third-degree failure to file tax returns before Superior Court Judge Mark J. Fleming in Mercer County. Under their plea agreements, they will each face a sentence of five to 10 years in state prison and will be required to enter a consent judgment to pay restitution to the home sellers, as well as the mortgage lenders, to the extent that the lenders have sustained losses.

***

The state’s investigation revealed that between August 2006 and February 2008, the couple stole more than $600,000 from clients who agreed to have Smith sell their homes. Smith and Betha allegedly diverted proceeds of the sales into their own bank accounts for their personal use, deceiving the sellers into believing they were not entitled to all of the profits from their homes.

***

The couple used a variety of schemes to fraudulently divert proceeds from the home sales into bank accounts maintained by Smith and S&B. They represented to sellers and title companies that monies were owed to them for expenses, including property renovations and repairs that were never done and exorbitant consultant fees that they claimed the sellers had authorized.

Many of the checks issued by the title companies handling the property sales were written to the home sellers, but Smith convinced the sellers to sign the checks over to her for payment of business expenses and fees. In several instances, the defendants falsely indicated on HUD forms and tax forms that the sellers directly received all of the profits from the home sales. They also omitted to tell sellers that they were agreeing in mortgage closing documents to pay large, unauthorized “seller’s concessions or seller’s assists” to the buyers.

The victims were not financially sophisticated. They did not understand the details of the property closings and, because of their financial woes, were anxious to be free of the obligation of paying mortgages they could no longer afford. Smith and Betha took advantage of these facts to steal the victims’ profits from the home sales.

Teresa Fusco thought she had done everything that she needed to do to sail comfortably into her golden years. She owned a condominium unit in Reading, Pa., with an appraised valued of $101,000, and she had a rainy-day fund in case her health failed.

So she was shocked when earlier this year she suddenly found herself with no home and a wrecked credit score after a company that bought most of the condo complex sold her unit for less than half of what she thought it was worth. To make matters worse, Fusco [] is still on the hook for the $71,000 mortgage on the property that she no longer owns.

"As a single woman, 56 years old, who works hard and was looking to retire in that place, I had everything set up," Fusco said.

Her plans -- and those of 10 other homeowners who say they've had their properties stolen from them -- started to unravel when Deer Path Woods, the condo complex where they lived, went into foreclosure last fall. Fusco's unit was one of 11 that were individually owned; another 97 were rental units. When the owner of the rental units failed to pay his mortgage, a company under the control of local developer Kevin Timochenko snapped all of them up for $7,200 at a foreclosure auction.

The purchase gave Timochenko's company, Water Polo I, LP, control of nearly 90 percent of the units of the complex, arming it with enough votes to dictate condominium association policy. Soon after the purchase, Fusco and her fellow homeowners received a letter informing them that, come January, condo association fees would more than double, to $450 a month. The increase, according to a representative of Water Polo I, was to pay for upgrades to the complex that the tenants had demanded.

"We were all freaking out because we couldn't afford that in addition to the mortgages that we were paying," said former unit owner Adrienne Dawkins [...] who took out a $102,500 mortgage to buy her unit at Deer Path in 2007, and has since been forced to leave her home along with her three children. "We agreed to pay $200 when we bought our homes."

Anxiety over raised assessment fees paled in comparison to what happened next: The new condo owner called a vote to terminate the condo association altogether.

From Condos to Rentals

Dissolving a condominium organization isn't unusual. Termination reduces management costs, and in a depressed market makes it easier for homeowners to sell their units. It's often easier to find a buyer for an entire condominium, and a bank doesn't have to approve the sale. After termination, units of the dissolved condominium sell in bulk and are then typically converted into an apartment complex owned by a single developer.

"By buying the 89 percent of the units at the foreclosure sale last year, [Timochenko] acquired all of the units and all of the votes he needed to approve a termination," explains Tom Beaver, an attorney whom some of the unit owners turned to for help.

Here's the rub: Under Section 3220 of the Pennsylvania Uniform Condominium Act, when a condominium is dissolved, the condo association can put the entire condominium up for sale, regardless of who owns the individual units. So in acquiring control of the condo association, Water Polo I also gained the right to sell Fusco's home.

In April 2012, Deer Path Woods was put up for auction. Beaver, who attended the auction, said it sold for $3.425 million.

The buyer? Another company controlled by Kevin Timochenko. Along with the 97 rental units, the sale included the 11 owner-occupied apartments. The new buyer, Hoya I, LP, then converted the condominium into an all-rental apartment complex, now known as Spring Valley.

"The effect of terminating the condominium was to divest all of the unit owners of their real estate interest," Beaver said, adding that rentals are especially profitable for developers in today's market of high rental rates and diminished home values.

Dubious Nature Of LLC-Peddler Claims That Some States Have More Debtor-Friendly Charging Order Laws Than Others

From a recent column in Forbes:

You see the advertisements all the time: “Form your LLC in Wyoming!” or “Create your LLC in Delaware”, or “Get the Nevada Advantage with Your LLC!”

Several states have healthy industries that consist of little more than forming corporate entities in those states. They often attract such business by making claims that the laws of their states are more debtor-friendly than those of other states, thus presumably providing greater asset protection for the owner.

In most states, Limited Liability Companies (LLCs) and partnerships in their most common variations (GPs, LP, LLPs, and LLLPs) have a benefit that corporation do not, which is that creditors cannot simply levy on the stock in such entities — they have no stock, technically — but instead creditors must obtain a “charging order” that has the effect of placing a lien on the debtor’s interest.

That lien operates to pay to the creditor if any distributions are made to the debtor’s interest, but if not distributions are made then the creditor gets nothing, and the creditor is not normally entitled to take assets out of the entity either.

As mentioned, a few states claim to have “better charging order laws”, which means charging order laws that are more friendly to debtors and less friendly to creditors. Presumably, so says the marketing of those from these few states, a creditor will be stymied by their states laws and unable to obtain a creditor-friendly charging order.

But that theory hinges on the real question: Whose law applies? If somebody forms, say, a Wyoming LLC, but the LLC is actually doing business in California such that the California courts could enter their own charging order against the entity, must Wyoming respect the California court’s judgment even if the opposite decision might have been reached under Wyoming law?

This issue comes down to one involving the U.S. Constitution, and more particularly the Full Faith & Credit clause that says that the courts of one state must respect and give power to an order of the courts of other states, just as if a court in-state had issued that order.

That brings us to today’s question:

Is a Charging Order the sort of order that is entitled to Full Faith & Credit by the courts of other states?

Editor's Note: Those 'judgment infected' real estate operators getting the bright idea of forming an out-of-state LLC to take title to real estate in an effort to stymie their judgment creditors may have second thoughts about using this asset protection technique in light of this ruling, which essentially provides something of a creditors' roadmap for collecting on outstanding debts in those situations.

Tuesday, July 03, 2012

F'closed Landlord Faces Felony Charges For Continuing To Pocket Rent Payments From Former Tenants; One Victim Left Holding The Bag On Rent To Own Deal

In Delaware County, Pennsylvania, The Delco Daily Times reports:

A landlord who lost a majority of his nearly 200 rental properties to foreclosure is charged with stealing rent money from his former tenants.

Jeffrey S. Bobb, 44, of Cherry Hill, N.J., allegedly collected more than $10,000 in rent payments from several former tenants even though he no longer owned the properties, according to the affidavit of probable cause written by County Detective Matthew Cresta of the Economic Crimes Unit.

Bobb, owner of JSB Properties, Tross Associates and Chester Redevelopment Incorporate, owned and managed approximately 200 rental properties in Delaware County — the majority of which are now in foreclosure because of delinquent taxes or mortgage payments, the affidavit states.

One woman, who was represented by an attorney, entered into what she believed was a lease/purchase agreement with Bobb for a property on East 24th Street in Chester last October. She made several payments to Bobb totaling $5,920 before discovering the house was in foreclosure and he no longer had ownership of the property, according to the affidavit.

Bobb’s alleged scam came to light last July when a Marcus Hook police officer was called to investigate an incident in which the resident of a home on Yates Street made a rent payment to Bobb even though the property had been sold at a sheriff’s sale several months earlier.

***

Bobb was arraigned [] on charges including theft by unlawful taking, theft by deception, receiving stolen property, misuse of communication facilities, all felonies, and related offenses. He was released on $20,000 unsecured bail.

It was the home Penny and her husband had been searching for. "This was our dream house and it hurts my heart that we're losing it," Penny said. The couple lost it after Penny's husband lost his job, and she took a 45 percent paycut.

"I contacted my mortgage company at the time, let them know what was going on, asked if maybe we could work something out," she said. Penny says a loan modification fell through due to lost paperwork. Other programs didn't work either, she says.

Finally, Penny says Everhome Mortgage agreed to a short sale through a real estate agent, who put their dream home on the market. "Four days later we had an offer, in the meantime, our mortgage company had started foreclosure proceedings."

Penny says it hired a "property preservation" company, which entered the house to change locks. And she says that company went through their personal belongings.

Penny doesn't understand why since they had been approved for a short sale to avoid foreclosure. "It's really frustrating, this has been going on for nearly a year now."

But then Penny contacted the 2News Problem Solvers, and we got in touch with the mortgage company. We weren't given many details about Penny's situation, but within days, she got good news. The foreclosure was put on hold, to allow for a short sale.

Penny says she was eventually able to get information about her options, by contacting a government agency called Making Home Affordable.

The foreclosure processor sued by Nevada Attorney General Catherine Cortez Masto in last year’s robosigning cases has now retaliated, suing Masto and alleging due process violations.

In December, Masto’s office sued Lender Processing Services Inc. (LPS) of Jacksonville, Fla., claiming it was involved in widespread fraud involving mass document-signing procedures in which foreclosure documents were fraudulently notarized by the thousands. That suit remains active in Clark County District Court.

The investigation that led to her suit also resulted in criminal charges against several notaries and two LPS officers.

On Wednesday, attorneys for LPS sued Masto in federal court in Las Vegas charging its due process rights were violated in the investigation.

The Eleventh Circuit has come through for consumer debtors on the issue of stripping off wholly unsecured liens in chapter 7.

In In re McNeal, No. 11-11352 (11th Cir., May 11, 2012), the court found that once a lien is determined to be wholly unsecured under section 506(a) it may be stripped off under section 506(d), which provides “[t]o the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void.”

In so holding, the Eleventh Circuit joined the minority view that the decision in Dewsnup v. Timm, 502 U.S. 410 (1992), does not extend to wholly unsecured liens. After listing the cases that have found such lien strips to be prohibited under Dewsnup, the court turned to its own precedent for guidance.

In Folendore v. United States Small Bus. Admin., 862 F.2d 1537 (11th Cir. 1989), the court found that section 506(d) permits strip-off of an allowed claim that is wholly unsecured. The court found that Dewsnup did not abrogate this decision because Dewsnup dealt with a partially secured claim while Folendore was precisely on point, dealing with a wholly unsecured lien.

The McNeal court noted that some of the reasoning used in Dewsnup did not support its decision, but it did not find that discrepancy to be determinative for two reasons.

First, the holding in Dewsnup was not directly on point, and the reasoning that would seem to abrogate Folendore was not essential to its holding. Second, the Court in Dewsnup was careful to limit its holding to the issue before it, thereby discouraging extrapolation of its holding to cases beyond its four corners.(1)

The Bankruptcy Court for the Eastern District of New York has found that such strip-offs are permitted by the Code. In re Lavelle, 2009 WL 4043089 (Bankr. E.D.N.Y. 2009); In re Howard, 184 B.R. 644 (Bankr. E.D. N.Y. 1995).

NACBA submitted an amicus brief in support of the debtor in the district court.

(1) In its ruling, the three-judge panel makes the following observation on the application of the Supreme Court's Dewsnup decision in connection with the earlier, seemingly conflicting 11th Circuit's ruling in Folendore:

"Under our prior panel precedent rule, a later panel may depart from an earlier panel's decision only when the intervening Supreme Court decision is `clearly on point.'" Atl. Sounding Co., Inc. v. Townsend, 496 F.3d 1282, 1284 (11th Cir. 2007). Because Dewsnup disallowed only a "strip down" of a partially secured mortgage lien and did not address a "strip off" of a wholly unsecured lien, it is not "clearly on point" with the facts in Folendore or with the facts at issue in this appeal.

Although the Supreme Court's reasoning in Dewsnup seems to reject the plain language analysis that we used in Folendore, "`[t]here is, of course, an important difference between the holding in a case and the reasoning that supports that holding.'" Atl. Sounding Co., Inc., 496 F.3d at 1284 (citing Crawford-El v. Britton, 118 S. Ct. 1584, 1590 (1998)).

"[T]hat the reasoning of an intervening high court decision is at odds with that of our prior decision is no basis for a panel to depart from our prior decision." Id. "As we have stated, `[o]bedience to a Supreme Court decision is one thing, extrapolating from its implications a holding on an issue that was not before that Court in order to upend settled circuit law is another thing." Id.

In fact, the Supreme Court — noting the ambiguities in the bankruptcy code and the "the difficulty of interpreting the statute in a single opinion that would apply to all possible fact situations" — limited its Dewsnup decision expressly to the precise issue raised by the facts of the case. 112 S. Ct. at 778.

Because — under Folendore — GMAC's lien is voidable under section 506(d), we reverse and remand for additional proceedings consistent with this decision.

A federal grand jury in Mobile, Ala., returned an indictment [] against two real estate investors and their company, charging them with participating in conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions held in southern Alabama, the Department of Justice announced [].

The department said the father and son real estate investors, Robert M. Brannon of Laurel, Miss., and Jason R. Brannon of Mobile, respectively, and their Mobile-based company, J & R Properties LLC, conspired with others not to bid against one another at public real estate foreclosure auctions in southern Alabama.

The indictment, returned in the U.S. District Court for the Southern District of Alabama, charges that after a designated bidder bought a property at a public auction, which typically takes place at the county courthouse, the conspirators would generally hold a secret, second auction, at which each participant would bid the amount above the public auction price he or she was willing to pay. The highest bidder at the secret, second auction won the property.

The Brannons and J & R Properties were also charged with conspiring to use the U.S. mail to carry out a scheme to acquire title to rigged foreclosure properties sold at public auctions at artificially suppressed prices, to make and receive payoffs to co-conspirators, and to cause financial institutions, homeowners and others with a legal interest in rigged foreclosure properties to receive less than the competitive price for the properties.

Jason Brannon, Robert Brannon and J & R Properties are charged with participating in the bid-rigging and mail fraud schemes from as early as October 2004 until at least August 2007.

Two men were ordered to go back to prison after prosecutors say they swindled dairy farmers in Fillmore out of hundreds of thousands of dollars, and failed to follow the rules of their probation.

Back in 2007, Jamis Johnson was convicted of securities fraud, along with co-defendant Paul Schwenke. Prosecutors say they sold worthless stock for American-Dairy.com. Some of their victims even handed over control of their land as payment.

"To take advantage of poor, rural farmers who work their lives to keep their farms going… to have two men with bad intentions take advantage of them is unbelievable," Utah Attorney General spokesman Paul Murphy said.

Johnson and Schwenke took in hundreds of thousands of dollars. But the judge let them stay out of prison if they worked to pay back their alleged victims and they agreed to stay away from each other.

"Instead, they went back to work with each other and didn't pay the victims anything," Murphy said. Murphy said some of the land the farmers handed over to Johnson and Schwenke went into foreclosure.

"The men took the property that they got in exchange for the stock, went to the banks, used the property as collateral and then spent all the money." Johnson will serve one to 15 years in prison. Schwenke won't be considered for release until at least 2017.

Sunday, July 01, 2012

The state supreme court found that a class arbitration waiver in its contract was unconscionable and held that the remedy was to strike the entire arbitration agreement. The Supreme Court vacated that opinion and remanded in light of Concepcion.

On remand, the court found that the presence and enforcement of the class arbitration waiver didn’t make the arbitration clause unconscionable, but, applying traditional Missouri contract law and looking at the agreement as a whole, the court found that Brewer demonstrated unconscionability in the formation of the agreement, appropriately remedied by revoking the arbitration clause.

Brewer borrowed $2215, secured by the title to her car, at an APR of 300%. The contract, whose terms no consumer had ever successfully renegotiated, provided for resolution of any claim against the title company through binding individual arbitration.

The title company, however, reserved the right to go to court to repossess the car, or to use self-help. Unlike the agreement in Concepcion, the agreement barred fee-shifting and didn’t provide a fee multiplier or guaranteed minimum recovery if the consumer were awarded more than the title company’s last offer.

“The cumulative real-world effect of the arbitration provisions in this case is that a consumer's minimum and maximum recovery from the title company are identical—$0.00—for no consumer ever has filed an individual claim for arbitration against the title company.”

Brewer made two payments of more than $1000, which reduced her loan principal by 6 cents. She filed suit alleging violations of numerous statutes, including the state merchandising practices act. The case then made its way through the courts solely on the class arbitration issue.

The following excerpt is the abstract of a recent article on the auto title loan racket co-authored by University of New Mexico Law School Professor Nathalie Martin and recent UNM Law School graduate Ozymandias Adams:

This Article analyzes empirical data on one of America’s fastest growing credit products, the title loan. A title loan is a high-interest, deeply over-secured, consumer loan, in which the consumer uses an unencumbered auto-mobile as collateral for a non-purchase money loan.

Title loans are made based solely on equity in a car. If a customer has insufficient income to pay the payments under the loan, typically interest-only payments at 300% per annum or more, the lender repossesses the vehicle, many of which have GPS trackers installed for this purpose.

Not surprisingly, the repossession rates for title loans are higher than regular auto repossession rates, as well as home foreclosure rates. Prior to repossession, lenders recover their principal many times over.

For example, one customer paid over $10,000 on her $4000 loan. Another paid over $11,000 on a loan of $1500. Despite these realities, title loans have garnered little interest in the scholarly world.

While legislatures around the nation struggle with how to regulate home loans, credit cards, and other middle class products, title loans go largely unnoticed and unregulated. This Article reports on data about who uses these loans and how often, as well as on repossession rates. It concludes that, given the protections we have provided to middle class consumer credit users, we also should regulate the consumer credit products used primarily by the lower and working classes.

I recently published a law review article entitled Grand Theft Auto Loans with Ozy Adams. It discusses title lending based upon data collected by the State of New Mexico. This article cover a tremendous amount of ground, but as these things tend to go, I have now heard of two critical topics we should have discussed but didn't.

***

Here are two important things we missed. First, it seems that the process of repossessing and then having a customer redeem the vehicle is extremely profitable for the lender and very expensive for the client. Having asked around bit this past week, I am hearing regular stories about this from legal aid offices around the state. I don’t think I quite realized what a profit center repossession followed by redemption really was. This also means that in states that report only vehicles ultimately lost to repossession, this added expense/loss is never accounted for and is thus not in the reported repossession numbers. This deserves further study.

Second, above I say the loans can only be paid off in one lump sum. But I kid you not, folks, that is so wrong! Reality check: You can’t pay them off at all! I do not mean that the customer cannot come up with the money.

What I mean is that the lenders find ways to keep you in the loans even if you show up with the total amount of funds owed. They will not take checks from banks. Even if you seemingly pay it off in full, they come up with charges they missed and keep asking for more. They refuse to release titles.

They try to confuse customers, do not listen to customers, by hook or by crook, they simply will not take the principal to pay off the loan. One friend of mine who runs a CDC has documented these practices over and over again. He has found that unless they feel the law might get involved, the loans never die.

West Virginia Attorney General Darrell McGraw said [] his office has filed a lawsuit against a "predatory" out-of-state title loan company in Jefferson County Circuit Court.

In a news release, McGraw said he filed the suit in an effort to protect residents from the "abusive and unlawful harassment and triple-digit interest rates" of Virginia-based Fast Auto Loans Inc., Georgia-based Community Loans of America Inc. and Robert I. Reich, the president and CEO of both corporations.

Their business consists of loaning money to people who own motor vehicles. The loan is secured by a lien on the borrower's vehicle. These types of loans are often referred to as "title loans" -- which are not authorized by state law, according to the Attorney General's Office.

In his lawsuit, McGraw is asking for a permanent injunction preventing FAL from making unlawful threats of criminal prosecution and halting the company's collection of excess charges, failure to follow the law in seizing consumers' vehicles, extreme methods of coercion and other deceptive, unfair and illegal debt collection practices.

The attorney general's suit charges that FAL violated several state consumer protection laws and asks for civil penalties as well as restitution and refunds for consumers.

***

In McGraw's newest action against the company, he alleges FAL charged 300 percent interest on loans made against car titles, "repeatedly harassed and abused" state consumers, their families and friends to try to collect debts, made false threats of arrests and criminal prosecution, and went as far as confiscating cars without court orders.

In fact, some victims' vehicles were seized even though the amount owed -- as little as $100 -- was a fraction of the car's value, the attorney general said.

Bill Collectors From Hell: Three Victims Recount Their Tales

A recent story at CreditCards.com reports on three debt collection horror stories where the victims terrorized by debt collectors recount their tales. Some excerpts:

Tale No. 1: Terrorized by text

The debt: Jessica Burke had bought a used Pontiac Grand Am and fell a few months behind on payments when she had trouble finding work after a move to California. She called the financing company, and they agreed to give her extra time to pay.

***

The harassment: The bill collector got her address and other private information by calling her cell phone company, impersonating her father and asking to be added to her account. Then, he began a barrage of angry calls and texts. The messages upset Burke so much she called the police, who ordered the collector to stop contacting her.

But the texts continued for weeks, coming from a disguised number and implying that he was watching her. In one, he called her "Porky Pig" and a "200-pound slob" and added, "I got picture messages of you today." Late one night, she says, he texted her, claiming he was outside her house. She says: "It was 11 o'clock at night, I lived in a very rural area and I was home by myself. I was terrified."

***

Tale No. 2: Get your gun

The debt: A debt collector called West Virginia homemaker Diana Mey about an old debt, possibly a credit card debt, allegedly owed by her son, who had moved out eight years earlier.

***

The harassment: The collectors continued to call, threatening to put a lien on Mey's house and to sue her son. She sent a letter telling the company to stop contacting her. Then she started getting hang-up calls that showed up on her caller ID as coming from the local sheriff's department.

"I called the sheriff's department and said, 'Is somebody trying to get ahold of me?' They said 'No.'" One evening, the phone rang again, from the same number. The deep male voice on the other end asked for Diana, using a vulgar slur. He then went on to make graphic threats of sexual assault. Horrified, Mey told him she was recording the call. He responded: "Yay." After she hung up, Mey called 911 to report the incident. Home alone, she got her husband's gun and hung it on her bedpost that night. She says: "I was literally shaking I was so scared."

Tale No. 3: Followed on Facebook

The debt: In Florida, Kathryn Haralson bought a used Jeep Grand Cherokee and made monthly payments for more than five years until she fell behind in February 2011. She thought she had only a few more payments left. However, the creditor, MarkOne Financial, claimed she still owed $7,400.

***

The harassment: The bill collector called her work number and asked a coworker where Haralson usually parks her car, Haralson says. He also called her father, her brother, her husband and her daughter, who was away at college, according to her lawsuit. The collector dialed her husband's cell phone so much that he had to stop answering it and missed several business calls, she says.

The collector called her brother at work enough to jeopardize his job and refused to stop, she says. Then he tracked Haralson down on Facebook and wrote: "Good day. Please contact Mr. Rice at MarkOne regarding a personal business matter," followed by his phone number. Haralson says: "When I started getting Facebook messages, that was very alarming."

Threat Of 'Baby Prison' As A Bill Collection Tactic Used On Moms & Their Newborns Seeking Hospital Discharge?

The following excerpt is taken from a Memorandum of Law filed by the Office of Minnesota Attorney General Lori Swanson in a lawsuit the state filed against Accretive Health, a hospital bill collector, based on allegations of conduct that violates state law. An excerpt (begins on page 16):

E. Baby Prison and Patient Overbilling.

Accretive uses its own software program, known as AHtoAccess, or A2A, to get money from patients. A hospital registration employee using A2A cannot process a patient electronic record unless he or she first processes informational “balls” that pop up on the screen. SAC ¶ 96.

The system is derisively referred to by hospital employees as the “Blue Balls” program. A2A purportedly determines the financial responsibility of insured patients for co-pays, deductibles, co-insurance, and for past balances, as well as the amount to be asked of uninsured patients for past balances and present bills. Id. Based on the information in A2A, patients are then told to pay money to the hospital. Id. The amount calculated by A2A for patients to pay often exceeded the amount owed by the patient. Id. As a result, Minnesota patients sometimes paid more than they owed.

For instance, Amy Zumwalde works with disabled kids at Richfield Public Schools. She and her husband’s first child, Max, was born at Southdale Hospital in March of 2011. As Amy was proudly leaving the hospital to take her new baby home, a woman stopped her and said she must cough up a credit card to pay for the delivery.

Amy replied that she had insurance and thought she had 30 days to pay any balance. The woman replied that Amy owed about $800 and that her newborn couldn’t be discharged unless she paid.Fearful that she wasn’t going to be allowed to take her new infant home, Amy gave the woman her credit card. As it turns out, Amy had already met her deductible and was overcharged about $800. Affidavit of Amelia Zumwalde.

CBC News: Betrayal of Trust (A CBC investigation reveals how lawyers across Canada have misappropriated and mishandled clients money, to the tune of tens of millions of dollars, or sometimes even charging vulnerable people top dollar for shoddy services)

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